United States: August 2017 Protest Roundup

There is no question that procurement regulations give agencies
significant discretion at every step of the procurement process,
and protesters often have a hard row to hoe to overcome the
agency's exercise of that discretion. However, agencies
often make that task easier by failing to provide full and logical
explanations of their decisions that show they have considered all
the relevant facts in light of the competing goals of the
procurement system, not just the agency's objective. The
following cases from August illustrate this point.

In Veterans Technology, the Court of Federal Claims took the
view that the SBA's failure to engage in a fact-specific
inquiry into the particular financial and competitive circumstances
of the parties resulted in an arbitrary and capricious decision
that the protester, Veterans Technology ("Vet Tech"), was
not a small business.

On April 1, 2015, the Missile Defense Agency awarded a small
business set-aside contract to Veteran Technology, LLC, a joint
venture between MDW and DAI, each holding respective ownership
interests of 49% and 51%. In a size protest following the
contract award, the SBA Area office concluded that Vet Tech was not
a small business because all of its members were not small
business. MDW was affiliated with ECS because at the time Vet
Tech submitted its bid, it was economically dependent through
contractual or other relationships on ECS, a large business with
substantial prime contracts with the Missile Defense Agency.
Seventy percent of MDW's revenue came from subcontracting with
ECS, because MDW and ECS together exceeded the size standard
s. On appeal, the Office of Hearing and Appeals ("SBA
OHA"), agreed with the area office stating that "as a
matter of law, a firm that derives 70% or more of its revenue from
another firm is economically dependent on that firm."
Furthermore, Vet Tech did not fit within recognized exceptions to
the economic dependency for startup businesses or businesses with
very few contracts. According to SBA OHA, MDW was not a
startup business at the time Vet Tech submitted its bid and the
contract between MDW and ECS was substantial.

The court expressed concern that the SBA's decision did not
take into account whether Vet Tech and MDW were
"dominant" in their field of operations, which was the
ultimate objective of the SBA's affiliation rules. Such a
determination, according to the court, depends on defining the
"relevant geographic and product market" of the
businesses and specific factual inquiries. Generalized
statements about the field of work or the nature of the work
performed by the enterprises under consideration is
insufficient—rather, a "more robust economic analysis is
required." The Court identified several deficiencies in
the SBA area office's decision and reasoning and concluded the
SBA OHA's decision affirming the area office decision was
arbitrary and capricious. According to the Court, "the
SBA Area Office, in the first instance, has discretion to determine
whether affiliation exists so that 'firms . . . may be
treated as one party.'" MDW did not have control of
Vet Tech by virtue of its stock ownership, and the area office did
not discuss other factors that may lead to a conclusion that MDW
had control of Vet Tech. Moreover, the conclusion that MDW
was economically dependent on ECS was deficient because among other
things, SBA failed to consider the circumstances upon which MDW
obtained several of the subcontracts with ECS. The Missile
Defense Agency had directed ECS to award at least one subcontract
to MDW. Judge Braden took the view that if the Missile
Defense Agency required MDW to enter a contractual relationship
with the ECS, Vet Tech should not be punished for the existence of
such relationships. The Court vacated and remanded OHA's
earlier decision and required the SBA to conduct a new size
determination in light of the decision.

In another sustained protest, in David Jones, the GAO
upheld the protester's contention that an agency's price
reasonableness determination based on a single line item was
unreasonable.

In response to the solicitation for quotations for a Blanket
Purchase Agreement for equal employment opportunity claims
investigations for the Department of Veterans Affairs, the
protester submitted unit and extended prices for several line
items. The VA concluded that it would not consider the
protester for award because its offered price for a single line
item was not fair and reasonable, even though the offered prices
for the other line items were lower than the agency's
benchmarks.

The GAO concluded that the VA had failed to analyze the risks to
the government of the high price of a single line item.
According to the GAO, "the VA engaged in no analysis
whatsoever to assess whether there was a risk that the
protester's high price on the single line item in question
would result in the government paying an unreasonably high price
for performance of a typical order under the BPA."
Accordingly, the VA's decision to exclude the protester was
found to be not reasonable.

In AT&T, the Court of Federal Claims held that the
Department of Commerce, Census Bureau's decision to override an
automatic stay resulting from a GAO protest was arbitrary and
capricious. Under the Competition in Contracting Act
("CICA"), when a party files a bid protest action at the
GAO, the procurement is automatically stayed until the protest
action is resolved. However, an agency may override the stay
by notifying the GAO in writing that either "performance of
the contract is in the best interests of the United States,"
or "urgent and compelling circumstances that significantly
affect interests of the United States will not permit waiting for
the decision of the Comptroller General concerning the
protest." 31 U.S.C. § 3553(d)(3)(C). In
AT&T, faced with a self-imposed deadline to conduct an
End-to-End Census test in 2018, the Census Bureau authorized the
override of the stay because any delay in continuing with the
contract could "introduce adverse risk, unacceptable delays,
and costs increases, and jeopardize the missions and quality of the
2020 Census Program."

The court concluded that the override decision did not
adequately demonstrate that there were urgent and compelling
circumstances compelling override of the CICA stay. First,
the Census Bureau failed to show that any of the issues it
anticipated would occur if the stay continued would create an
immediate threat to health, welfare, or safety. According to
the court, these are the types of circumstances that typically
qualify as "urgent and compelling." Although the census
was of Constitutional and Congressional importance, "the risks
associated with testing delays are not risks to public
safety." In addition, the court found that the adverse
consequences the agency identified were speculative in
nature. Moreover, the agency's procurement schedule
itself could not be considered a reasonable basis of assessing the
effect of the CICA stay.

The court was equally unconvinced that the agency had no
reasonable alternatives during the pendency of the stay. The
Census Bureau's determination and findings did not contain
evidence that it had engaged in a meaningful review of other
reasonable alternatives. Nor did the agency include a cost
benefit analysis of the potential costs of complying with the stay
compared to the decision to proceed with contract performance. The
court concluded that allowing the override to stand would weaken
GAO as a protest forum and undermine the integrity of the
procurement system. As a result, the court granted
protester's request for declaratory relief, finding that the
decision to override the CICA stay was arbitrary and
capricious.

Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.

On November 13, U.S. Government Accountability Office ("GAO") published its Annual Report to Congress (B-158766, November 13, 2017), which contains the statistics for bid protests filed at GAO in FY 2017.

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